COVID-19 wipes out 30% in Korea’s top 100 stocks, sends P/B ratio to 20-yr low

2020.03.23 12:29:59 | 2020.03.23 15:02:55

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The new coronavirus (COVID-19) has been merciless on corporate life, wiping out a third of the value in Korea’s 100 most weighted stocks since its arrival two months ago and making the bulk of the members on the Korean bourses cheaper than their book value.

According to data compiled by local market researcher Korea CXO Institute on Monday, the market cap of the country’s top 100 publicly trading companies (five largest companies by revenue each from 20 industries) shriveled 29.7 percent to 629.8 trillion won ($494.6 billion) on March 20 compared with their closing on Jan. 20 when the country reported its first confirmed COVID-19 case.

Their loss accelerated from Mach 12 when the World Health Organization declared COVID-19 a global pandemic, knocking out 12.7 percent in value.

The top five stocks of the country’s backbone electronics industry lost more than 126 trillion won in value in the past two months. The five most valuable car companies lost 27 trillion won, finance companies 19 trillion won, petrochemical firms 16 trillion won, telcos 15 trillion won, steel/metal makers 13 trillion won, and shipbuilders 10 trillion won.

The stock price plunged across all 20 sectors over the same period. Of them, shares of seven industries plummeted over 40 percent on average. The shipbuilders saw the steepest fall in their share prices of 48.6 percent, followed by tourism with 43.7 percent, automobiles 43.6 percent, machinery 43.5 percent, finance 43 percent, construction 42 percent, and air/sea transport 42 percent.

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As the stock market extended free fall over the past two months, the Kospi’s price-to-book ratio (P/B ratio) sank to 0.64, the lowest since 2000, on March 20, the Korea Exchange data showed.

The P/B ratio compares a company’s stock price to its book value, gauging to check whether the equity is under- or overpriced. A P/B ratio of less than 1 means that the stock is undervalued and therefore a good buy. But it also suggests poor earnings or negative returns of a company, especially during a financial crisis.

On March 19 when the Kospi crashed to breach below a 1,500-threshold for the first time since July 2009, its P/B ratio plunged to 0.59.

The 12-month forward P/B ratio, comparing the current stock price to estimated earnings per share for the following 12 months, also nears the bottom. According to data compiled by local market tracker FnGuide, the Kospi’s forward P/B ratio now stands at 0.58, with 19 out of 20 industry categories having the ratio hover below 1.

The forward P/B ratio of the electricity/gas industry is the lowest, marking 0.16. Tagging along behind are banks (0.17), insurance (0.22), steel/metal (0.26), stock brokerage (0.36), and retail (0.49).

But some market analysts think the current Kospi level is too low compared to the listed companies’ real value.

“Considering that the price index of stocks is determined by the income of listed companies, the Kospi below 1,500 is a range acceptable only when the combined net profit of all listed companies is below 60 trillion won,” warned Kim Hyung-ryeol, head of Kyobo Securities’s research center.

By Pulse

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